Table of Contents
Introduction 1
About This Book 2
Foolish Assumptions 2
Icons Used in This Book 3
Beyond the Book 4
Where to Go from Here 4
Part 1 Basic Bookkeeping: Why You Need It 5
Chapter 1 So You Want to Do the Books 7
Delving into Bookkeeping Basics 7
Choosing your accounting method 8
Understanding assets, liabilities, and equity 9
Introducing debits and credits 9
Charting your bookkeeping course 9
Recognizing the Importance of an Accurate Electronic or Paper Trail 10
Maintaining a ledger 10
Keeping journals 11
Considering computerizing 11
Instituting internal controls 11
Using Bookkeeping's Tools to Manage Daily Finances 12
Maintaining inventory 12
Tracking sales 12
Handling payroll 13
Running Tests for Accuracy 13
Proving out your cash 14
Testing your balance 14
Doing bookkeeping corrections 14
Showing Off Your Financial Success 14
Preparing financial statements 15
Paying income taxes 15
Getting a Business Number (BN) 15
Chapter 2 Getting Down to Bookkeeping Basics 25
Bookkeepers: The Record Keepers of the Business World 25
Wading through Basic Bookkeeping Lingo 26
Accounts for the balance sheet 27
Accounts for the income statement or statement of earnings 28
Other common terms 28
Pedalling through the Accounting Cycle 30
Exploring Cash and Accrual Accounting 32
Cash-basis accounting 32
Recording by using accrual accounting 33
Seeing Double with Double-Entry Bookkeeping 34
Differentiating Debits and Credits 37
Chapter 3 Outlining Your Financial Roadmap with a Chart of Accounts 39
Getting to Know the Chart of Accounts 40
Starting with Balance Sheet Accounts 41
Tackling assets 42
Laying out your liabilities 46
Eyeing equity 48
Tracking Income Statement Accounts 49
Recording the money you make 49
Tracking the cost of sales 50
Acknowledging the money you spend 51
Setting up your Chart of Accounts 53
Part 2 Keeping a Paper or an Electronic Trail 57
Chapter 4 Ledgers: A One-Stop Summary of Your Business Transactions 59
The Eyes and Ears of a Business 60
Developing Summary Entries for the General Ledger 60
Posting Entries to the General Ledger 64
Adjusting Entries and Accrual Accounting 68
Using Computerized Transactions to Post and Adjust in the General Ledger 69
Chapter 5 Keeping Journals 73
Establishing a Transaction's Point of Entry 74
When Cash Changes Hands 74
Keeping track of incoming cash 75
Following outgoing cash 77
Managing Sales like a Pro 79
Keeping Track of Purchases 81
Dealing with Transactions that Don't Fit 82
Posting journal Information to Accounts 85
Simplifying Your Journaling with Computerized Accounting 87
Dealing with Sales Taxes 91
Goods and services tax and harmonized sales tax (GST/HST) 91
Provincial sales tax or retail sales tax (PST/RST) 93
Chapter 6 Computer Options for Your Bookkeeping 95
Surveying Your Software Options 96
Sage 50 Accounting 97
QuickBooks Online 98
Setting Up Your Computerized Books 98
Customizing software to match your operations 101
Converting your manual bookkeeping to a computerized system 103
Chapter 7 Controlling Your Books, Your Records, and Your Money 105
Putting Controls on Your Business's Cash 106
Chequing accounts 106
Savings accounts 110
Petty cash accounts 110
Cash registers 111
Keeping the Right Paperwork 113
Creating a filing system 114
Figuring out what to keep and for how long 115
Protecting Your Business against Internal Fraud 116
Facing the reality of financial fraud 117
Dividing staff responsibilities 118
Balancing control costs 121
Protecting Your Cash through Employee Bonding 122
Part 3 Tracking Day-to-Day Business Operations 123
Chapter 8 Buying and Tracking Your Purchases 125
Keeping Track of Inventory 126
Taking a physical count 127
Calculating the cost of goods sold 128
Entering the initial cost 129
Managing inventory and its book value 130
Buying and Monitoring Supplies 135
Staying on Top of Your Bills 136
Chapter 9 Counting Your Sales 139
Collecting on Cash Sales 140
Discovering the value of sales receipts 140
Recording cash transactions in the books 142
Selling on Credit 143
Deciding whether to offer credit 143
Recording sales-on-account transactions in the books 145
Proving Out the Cash Register 148
Tracking Volume Discounts 149
Recording Sales Discounts 151
Recording Sales Returns and Allowances 151
Recording Service Revenue 154
Accrued revenue 155
Unearned revenue 155
Monitoring Accounts Receivable 157
Accepting and Expecting Your Losses 159
Recovering GST/HST 160
Chapter 10 Employee Payroll and Benefits 161
Staffing Your Business 161
Remembering two critical numbers 162
Filling out TD1 - Personal Tax Credits Return 163
Choosing pay periods 164
Investigating laws concerning employment 165
Collecting Employee Taxes 166
Canada and Québec Pension Plans (CPP/QPP) 167
Employment insurance (El) 168
Combined income tax withheld 169
Determining Net Pay 169
Considering Voluntary Deductions 170
Surveying Your Benefits Options 171
Tax-exempt benefits 172
Taxable benefits 174
Preparing Payroll and Posting It in the Books 175
Calculating payroll for hourly employees 175
Doling out funds to salaried employees 175
Totalling up for commission cheques 176
Counting tips and gratuities 177
Preparing and Recording Payroll Cheques 178
Outsourcing Payroll and Benefits Work 180
Chapter 11 Employer-Paid Benefits and Government Payroll Reporting 181
Paying Employer Portions of CPP/QPP and El 182
Filing Form PD7A 182
Knowing how often to file 183
Workers' Compensation Program (WCB) - Workplace Safety and Insurance Board (WSIB) 184
Maintaining Employee Records 185
Keeping track of employee records with software 186
Completing a Record of Employment (ROE) for departing employees 187
Part 4 Preparing the Books for Year's (Or Month's) End 189
Chapter 12 Depreciating Your Assets 191
Defining Depreciation 192
Knowing what you can and can't depreciate 193
Delving into cost basis 194
Reducing the Book Value or Carrying Amount of Fixed Assets 194
Evaluating your depreciation options 195
Choosing and changing a depreciation method 198
Tackling Taxes and Depreciation 198
Capital cost allowance (CCA) 199
Figuring out the useful life of a fixed asset 200
Setting Up Depreciation Schedules 200
Considering Impairments of Fixed Assets 201
Recording Depreciation Expenses 202
Chapter 13 Paying and Collecting Interest 203
Deciphering Types of Interest 204
Simple interest 204
Compound interest 205
Handling Interest Income 206
Delving into Loans and Interest Expense 207
Short-term debt 207
Long-term debt 211
Chapter 14 Proving Out the Cash 215
Why Prove Out the Books? 215
Making Sure Ending Cash Is Right 216
Summarizing the Cash Journals 218
Finalizing cash receipts 219
Finalizing cash outlays 223
Reconciling Bank Accounts 224
Tracking down errors 225
Using a computerized system 227
Posting Adjustments and Corrections 228
Chapter 15 Finalizing the Journals 229
Prepping to Post: Checking for Accuracy and Tallying 229
Paying attention to initial transaction details 230
Summarizing journal entries 230
Analyzing summary results 234
Planning for cash flow 234
Posting to the General Ledger 235
Checking Out Computerized Journal Records 236
Chapter 16 Checking Your Accuracy by Trial and - We Hope - No Error 241
Working with a Manual Trial Balance 242
Building your trial balance 242
Dealing with trial balance errors 244
Testing Your Balance by Using Computerized Accounting Systems 246
Developing a Financial Statement Worksheet 248
Replacing Worksheets with Computerized Reports 250
Chapter 17 Adjusting the Books 253
Adjusting All the Right Areas 253
Depreciating assets 254
Allocating prepaid expenses 256
Counting inventory 257
Allowing for bad debts 258
Recognizing unpaid salaries and wages 260
Accruing for unpaid services 261
Accruing for unpaid interest 262
Accruing for revenue 263
Adjusting for unearned revenue 264
Testing an Adjusted Trial Balance 265
Changing Your Chart of Accounts 266
Using the QuickBooks Journal Entry Feature 267
Part 5 Reporting Results and Starting Over 269
Chapter 18 Developing a Balance Sheet 271
What Is a Balance Sheet? 271
Gathering Balance Sheet Ingredients 272
Dividing and listing your assets 273
Acknowledging your debts 277
Naming your owners' investments 278
Ta-Dahl Pulling Together the Final Balance Sheet 279
Account format 280
Report format 280
Putting Your Balance Sheet to Work 282
Testing your liquidity 282
Assessing your debt 283
Generating Balance Sheets Electronically 284
Chapter 19 Producing an Income Statement 285
What Is an Income Statement? 285
Formatting the Income Statement 288
Preparing the Income Statement 289
Finding net sales 289
Finding cost of goods sold 290
Drawing remaining amounts from your worksheet 290
Gauging your cost-of-goods-sold 292
Deciphering Gross Profit 292
Monitoring Expenses 293
Using the Income Statement to Make Business Decisions 294
Testing Profits 295
Return on sales 296
Return on assets 297
Return on equity 297
Branching Out with income Statement Data 298
Chapter 20 Completing Year-End Payroll and Reports 301
Year-End Employee Reporting 301
Preparing T4s 302
Producing T4s with QuickBooks 305
Filing T4s 305
Preparing the T4 Summary 306
Chapter 21 Satisfying the Taxman 309
Finding the Right Business Type 309
Sole proprietorship 310
Partnership 310
Limited partnership (LP) 311
Limited liability partnership (LLP) 311
Corporations 311
Tax Reporting for Sole Proprietors 313
Capital cost allowance 314
Business expenses 314
Tax instalments 315
Filing Tax Forms for Partnerships 315
Paying Corporate Taxes 316
Taking Care of Sales Taxes Obligations 316
Using QuickBooks 318
Chapter 22 Prepping the Books for a New Accounting Cycle 319
Finalizing the General Ledger 320
Zeroing out income statement accounts 320
Carrying over balance sheet accounts 320
Conducting Year-End Bookkeeping Tasks 321
Checking customer accounts 321
Assessing vendor accounts 321
Updating your inventory records 322
Deactivating accounts 322
Starting the Cycle Anew 323
Part 6 The Part of Tens 325
Chapter 23 Top Ten Ways to Manage Your Business Cash with Your Books 327
Charting the Way 327
Balancing and Posting Your Entries 328
Reconciling Your Bank Account 328
Tracking Customer Collections 328
Paying Bills Accurately and on Time 329
Planning Profits 329
Comparing Budget to Actual Expenses 329
Comparing Sales Goals to Actual Sales 329
Tracking Cost Trends 330
Making Pricing Decisions 330
Chapter 24 Top Ten Most Important Accounts for Any Bookkeeper 331
Cash 331
Accounts Receivable 332
Inventory 332
Accounts Payable 332
Payroll Taxes Payable 332
Loans Payable 333
Equity 333
Sales 334
Purchases and Cost of Goods Sold 334
Wages and Salaries Expense 334
Appendix: Glossary 335
Index 343